European airport infrastructure is going through a deep transformation, driven by three combining forces: privatisation, the introduction of European charge regulation, and a change in the nature of air traffic.
The clearest signal of that transformation shows in valuations. Nice airport sold in 2016 at 22 times EBITDA, Lyon at 21 times, Toulouse at 18 times in 2015. Multiples well above those seen in earlier privatisations, 7.4 times for Rome in 2000, 11.8 times for AENA in 2015. Investors are therefore pricing in significant scope to improve profitability.
Privatisation that has accelerated
Historically owned by states or local authorities, airports set their charges free of regulation under a classic concession model. In France, the 2005 law converted Aéroports de Paris into a public limited company and opened its capital, while twelve major regional airports became airport companies open to private investors.
The trend is older elsewhere, with British Airport Authority listing as early as 1987, followed by partial privatisations in Copenhagen, Rome, Zurich and Brussels. It has accelerated markedly of late: the share of privatised European airports rose from 22 % in 2010 to 41 % in 2016.
The growth levers sought by these new shareholders are threefold: passenger traffic growth, particularly international, stimulation of retail, land and property activities, and operational optimisation drawing on the know-how of a portfolio of infrastructure assets.
Traffic whose structure is shifting
European air transport passed 900 million passengers in 2015. That growth is driven mainly by intra-European flights. The share of domestic flights is falling under competition from other modes, high-speed rail in particular, while low-cost traffic continues to gain ground.
That shift changes strategies. Some airports specialise, with simplified-service terminals designed to attract low-cost carriers. Others focus on retail and property growth while adapting their economic model.
Single till or dual till: the central trade-off
The 2009 European directive required member states to set up independent supervisory authorities, user consultation procedures and information transparency. Within that framework, the choice of economic model becomes a major issue.
The single till pools all costs and revenues to calculate airport charges. The dual till, or adjusted till, separates aeronautical activities from retail and property activities.
The conflict of interest is clear. Airports and their private shareholders favour the dual till, which delineates the costs attributable to airlines. Airlines prefer the single till, which lets them benefit from the revenue generated by the passengers they bring. In either case they seek to avoid the squeeze between falling unit revenue per passenger, the position most of them are in, and rising infrastructure charges.
Influencing regulation becomes an asset in itself
The single versus dual till debate does not exhaust the tariff question. Supervisory authorities aim for a fair return on capital employed. Beyond that, many airports now operate in a competitive environment: to capture traffic growth they must stay competitive against comparable European hubs, hence incentive pricing policies or actual reductions in charge caps.
The regulatory system is therefore subject to several constraints that keep it evolving. For new entrants in the airport sector, asset management skill will not be enough: the ability to shape future regulation will be a differentiating factor in its own right.
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The downloadable PDF of this study is available in French only.
